Until recently, Vietnam has tended to be viewed by the international business community as a host country platform suitable for low-end and labour-intensive manufacturing, such as shoes and garments. But now this perception is being revised, following Intel’s decision to build a $1bn semiconductor assembly and test facility close to Ho Chi Minh City.

The issuance of the investment licence was conducted with much fanfare. Prime minister Nguyen Tan Dung was present at the official signing ceremony -- evidence that the project is an important milestone in Vietnam’s bid to develop a more advanced industrial base. Indeed, it is perhaps the most psychologically important single FDI project for Vietnam since the country began welcoming foreign investment precisely 20 years ago.

But the project is important for Intel too. “This is the largest factory Intel has built anywhere in the world,” Rick Howarth, the general manager overseeing Intel’s investment activity in Vietnam, told fDi. “Twice as big as the newest one we’re building in Kulim [Malaysia].” Construction of the facility recently commenced, and should be completed by May 2009. Following machinery installation and certification, Intel hopes to begin ramping up production in just under two years’ time.

Originally, Intel planned to erect a smaller, 150,000 square feet facility, and was granted an investment licence in February 2006. But shortly after, Intel undertook an internal review to identify how the company might derive greater efficiency gains in what is becoming an increasingly competitive market. What it found was that its semiconductor plants were typically smaller than its competitors’, and that scaling up would bring about efficiency gains. “Vietnam was fortunate in that the timing of this decision came before we had broken ground,” explains Mr Howarth. We were still designing our facilities, and so at that point we said ‘stop the project’.” Intel then went about re-designing the whole scheme on a bigger scale, and eight months after getting its first licence, it got the green light for a much larger plant of 500,000 square feet.

Academic partnership

One challenge Intel will face is finding sufficient numbers of qualified employees, and is conscious of the need not to ‘hollow out’ the limited pool of human capital in and around Ho Chi Minh City. Hence it has been working with local universities, where it typically sources about 70% of its plant employees, as fresh graduates. But in a unique move for both Vietnam and Intel, the company also has plans to partner with an as-yet-undetermined US university to set up a campus close to the Intel plant.

The Vietnam plant also expects to draw on the support and expertise of Intel’s similar facilities in the surrounding region as it starts up. Employees will be sent to work in these other plants for up to a year and gain the experience that is required.

Asked why Intel had made the bold decision to erect its newest and biggest plant in a country where it has relatively little prior experience, Mr Howarth responds: “It’s all about continuous improvement; about driving new innovation and creativity. What I see is a unique passion and desire, even in the 75 employees that we have here right now, just to learn and absorb everything they can.”

COMPANY PROFILE

INTEL CORPORATION

Founded: 1968Headquarters: Santa Clara, CaliforniaEmployees worldwide: 94,000Annual turnover: $35.3bn